Economic assistance has been a staple of United States foreign policy in the Middle East for the past six decades – particularly in the oil-poor states of Egypt, Jordan, and Israel, which collectively received about $133 billion between 1946 and 2010. In the 1950s and 1960s, these three economic aid programs displayed marked similarities, most notably a focus on small projects and technical assistance in public administration, infrastructure, industry, and agriculture. In subsequent decades, all three countries garnered high levels of Economic Support Funds (ESF) by demonstrating their value to U.S. geopolitical interests. Egypt and Jordan concluded peace agreements with Israel in 1979 and 1994, respectively. They also adopted a mediating role in regional conflicts, working among and on behalf of various Palestinian factions as the peace process lurched onward. Egypt supported the ejection of Saddam Hussein’s Iraq from Kuwait in 1991, and, after the September 11th bombings, all three countries provided support for the U.S. in Iraq, Afghanistan, and/or the broader “War on Terror.”

Despite these basic similarities, U.S. economic aid has followed remarkably different trajectories in Israel and the Arab states. There were few, if any, contradictions between U.S. material support for Israel and the Jewish state’s record of democratic and economic development. The U.S. did not seek to use its assistance for the purpose of ensconcing one political party in power or favoring one party over another. So long as Israel continued along a developmental path, the U.S. stood behind large, discretionary aid packages. Between 1981 and 2007, Israel received its ESF in the form of an unconditional grant, as well as a host of other non-ESF benefits in scientific, technological, and industrial collaboration with American universities, firms, and defense contractors. On the other hand, the U.S. was also willing to exert pressure on Israel for tough economic reforms. When Israel’s economy faced a serious crisis in the mid-1980s, the Reagan administration strong-armed a Labor-Likud unity government into implementing a stabilization package by holding back $800 million in emergency assistance. In 1996 the Israeli government requested a phased termination of ESF, and the country became independent of economic assistance. In Egypt and Jordan, by contrast, any developmental goals of ESF could be subordinated to concerns about the stability of “friendly” authoritarian regimes.

Authoritarian incumbents use a variety of survival strategies to perpetuate their rule, including distributing material benefits to a select group of supporters (often called a “ruling coalition”); repressing opposition groups; and strategically cycling elites through positions of power. Geopolitically motivated donors collect significant intelligence on these activities, and are generally careful to tailor their aid programs in ways that support (or at least do not harm) their logic. While useful from a specific geopolitical perspective that seeks to maximize short-term strategic favors, this dynamic also generates “red lines” that may frustrate and limit the ability of foreign assistance to support institutional capacity-building and economic development. This is not always the case, as a cursory overview of U.S. aid to authoritarian (yet highly developmental) regimes in South Korea and Taiwan illustrates. Rather, Egypt and Jordan are particularly problematic because their incumbent regimes primarily relied/rely on highly distributive fiscal arrangements and thus, for domestic political reasons, rejected/reject many basic institutional and economic reforms that are believed necessary for growth and development. Both countries remain dependent on large quantities of foreign assistance from the U.S. and other donors.

In contrast to Israel’s budget support, the U.S. Agency for International Development (USAID) somewhat minimized the discretionary qualities of ESF to Egypt and Jordan by funneling a large portion of it into infrastructure, technical assistance, and commodity support – thereby reducing the chance that the aid would (in the words of a former congressional staffer) go down “some black hole” and have no developmental effects. At the same time, however, the U.S. was ultimately unwilling to press for deeper structural reforms that would have dismantled distributive and exclusionary systems of patronage that undermined institutional capacity, economic growth, and the effectiveness of future aid. ESF was never marshaled toward fundamentally restructuring the civil service, and was only sporadically able to deal with important issues like the tax code, privatization, subsidy retrenchment, financial sector reform, and trade liberalization. The U.S. even freed up bilateral funds to ameliorate budgetary crises arising from such arrangements; the resulting cash transfer programs remained in place one or two decades later. And when local counterparts lacked sufficient institutional capacity to implement policy, USAID enabled them to put comprehensive institutional reform on hold. “Parallel institutions” that relied on donor finance, personnel, and organizational frameworks simply bypassed the regular civil service to implement select economic and administrative reforms.

Egypt’s post-Mubarak era is exciting from a developmental standpoint because much of the old regime, and therefore the red lines that it generated for U.S. aid, may no longer exist. This may mean more freedom in formulating the aid program and delineating its goals. At the same time, it is foolish to expect that U.S. interests will disappear along with Mubarak and his National Democratic Party (NDP), or to assume that new political actors in Egypt will not impose their own. Policymakers therefore face the daunting task of anticipating future local partners in a highly uncertain context. Nobody knows which individuals or groups will hold important political, government, and economic positions in the next year or two; how they might feel about a partnership with the U.S. and other donors; and what political and economic agendas they will bring to the table. What, then, is to be done?

This paper has three goals. The first is to describe the historical dynamics among Egyptian domestic politics, U.S. geopolitical motives, and the formulation of U.S. economic aid to Egypt between 1975 and 2010, highlighting the “red lines” that inhibited aid’s developmental effectiveness. The second is to consider what opportunities and constraints might be generated for the aid program after the fall of Mubarak. The third and final goal is apply lessons from past USAID activities in Egypt to the current political and economic climate, generating recommendations for U.S. policymakers in the short and long term.